This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Financial Reform Leaves Vile Law Intact

Are you ready to hear another reason why the financial reform bill is not the game-changer it's cracked up to be? Ready or not, here it comes: Congress decided that one of the most noxious anti-investor, anti-consumer laws since Hammurabi's Code deserved to be kept intact.

I refer to the Private Securities Litigation Reform Act of 1995. While it was "reforming the financial system," Congress failed to reform out of existence this most vile of laws.

In this space a couple of weeks ago I referred to this horrendous law as the Private Securities Litigation Castration Act, but I forgot to identify who gets castrated: You. The reason is that the PSLRA sets a "high as an elephant's eye" standard for litigants trying to sue corporations and corporate officers, banks, hedge funds -anyone -- who may have ripped them off.

One result is that the expected torrent of litigation over the financial crisis, beginning with the subprime crisis of 2007, failed to materialize and those that commenced were chopped down in a wave of dismissals. I'll be coming to that in a moment. But first let's wallow a bit in this latest congressional nonfeasance.

Before PSLRA, people suing bad actors in corporate America could sue on bare-bones facts, and use civil discovery to tear loose information that they could use to prove wrongdoing (or -- and this is where it got gamey -- a class-action settlement enriching the lawyers while the investors or customers got bupkis). Thanks to PSLRA, investors must "state with particularity facts giving rise to a strong inference" that fraud was intentional. No laundry list of misdeeds, no discovery. If they win, investors still get bupkis, but they win far less than they used to, and corporate crime goes unpunished.

Congress didn't chop down the Christmas tree for overpaid lawyers. It planted one for Wall Street and corporations. That's become evident in the way judges throughout the country are falling over themselves to dismiss suits against the alleged perps of the financial crisis, in the dwindling number of cases in which plaintiffs have the gumption to try to leap over the PSLRA barrier. As reported recently by D&O Diary, one of my favorite legal blogs, lawsuits claiming violation of the securities laws have actually declined in the first half of this year. Financial crisis? What financial crisis?
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.80 -1.50%
C $46.73 -1.16%
BX $27.79 -2.70%
IMH $15.55 -0.77%
JPM $63.60 -0.80%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs